Cash usage declined by nearly 4% globally in 2022, with new developments in instant payments and digital wallets driving cash displacement in certain geographies.
The 2023 McKinsey Global Payments Report shed light on the role of instant payments in the ongoing steady cash usage decline in the world. In countries like Nigeria and Brazil, instant payments drive transactional revenue growth and contribute to the decline in cash transactions.
According to the report, cash-heavy developing economies are going to make even more significant shifts toward instant payments by 2027. This way, the firm expects that instant transactions’ share will reach roughly half of overall payments and nearly triple compared to 2022.
Instant payments have already contributed to the fall in cash transactions by 7% – 10% in India and Brazil. In Nigeria, the decline in the share of cash transactions from 95% in 2019 to 80% in 2022 coincides with the growth of instant payments. Their share in the local payment landscape quadrupled to 8% over the same period.
In some European countries, particularly Germany, instant payments are offered as a premium option, having a strong potential for revenue growth. At the same time, instant payments don’t always boost revenue growth in emerging economies. While Brazil’s PIX is expected to drive almost half of the transactional revenue growth through 2027, Indian UPI offers either low-cost or zero-fee transactions. It may contribute less than 10% of future revenue growth in India.
As for the mature markets, like the US and UK, cash decline was muted in 2022. Instant payments are still a nascent financial instrument there. However, this year’s launch of the Federal Reserve’s FedNow real-time payment rails may produce gradual changes in the US payment landscape.
In Europe, instant payments constitute 12% of the total credit transfer volume in the Single Euro Payments Area (SEPA). McKinsey estimates that this share could double by 2027. Moreover, if EU regulators introduce anticipated actions to encourage instant payment adoption, this share could rise to 45% of SEPA’s 23 billion annual transactions. They would take up an even higher share of account-to-account (A2A) payments, including transfers done through Automated Clearing House (ACH) and real-time gross settlement (RTGS).
Judging on the payment tendencies, McKinsey suggests that we are now at the beginning of a new era in the payments industry. The firm calls it the Decoupled Era. It is characterized by payments becoming increasingly disconnected from accounts and other fixed repositories of value. The payment systems tend to become decentralised, interoperable and open.
The Decoupled Era is expected to be further reliant on technology, including platform as a service (PaaS) models and generative AI, which will further customize user experiences, streamline payment processes, and protect against fraud. Payment giants like Visa are already investing in generative AI ventures, believing that the technology will have a transformative impact on the sphere of commerce.